New Side Job: What Do You Need Before Tax Time?
One of the best ways to improve your situation is to get a side gig. A new side job can help you boost your income and increase your financial stability.
I started Bargaineering as a side gig because I needed something to do at night after I went home from a day of work.
I thought it would fun to start a blog about personal finance since it was something I was interested in (weird, right?). After a few months, it started to bring in some advertising revenue and I was scrambling to figure out what I needed to do about taxes.
If you’re thinking about a side gig, now’s the time to start preparing – not next April!
Apply for an EIN
If you plan to make your side job a business, and you don’t want to use your own Social Security/Tax Identification number as part of the paperwork, you need to apply for an Employer Identification Number from the IRS. This is the number you will use when you fill out W-9 forms as a contractor, and it is what will go on your business tax return (if you have to file one).
You can get away with using your social security number but it opens you up to personal liability, which can be an issue if you’re running a side business (as opposed to just getting a side job). If you want a separate bank account for your business, you’ll need that EIN and proof you filed for an LLC or some other entity.
Keep Good Records
When you have a side job, you need to make sure that you keep good records. If you want to be able to deduct expenses related to your side job or if you want to make sure that your income is accurately reported, you need to keep good records.
Record all of your income from clients and then compare it with final reports and 1099 forms you get at the end of the year. You should also keep all receipts from your expenses related to your side job because those can be deducted against the income.
It’s also a good idea to keep notes. If you drive your car for your side job, note mileage and track that. If you take a client out to a business lunch, make sure you note what you talked about so that you can recall the details and prove that you really are claiming an appropriate business deduction for the situation. You can write directly on the back of the receipt or keep notes separately.
Be Aware of Estimated Tax Payments
Since our tax system is a pay as you go system, be sure to know when you need to make estimated payments throughout the year if your side gig is not withholding any income for tax purposes. If you are being paid as a contractor, they are probably not withholding income. TurboTax TaxCaster can help you estimate how much taxes you should pay.
Use Tax Software
The tax return you file for your business might also be a little different. If your side job comes with an actual structure, such as LLC, S-Corp, or C-Corp, rather than just being termed a sole proprietorship, you will need to file a separate tax return for your business.
Whether you are a sole proprietor or your business is a corporation, TurboTax can accurately file your taxes.